I’ve said before, maybe you haven’t seen this, that you should sell when the company’s story changes. Perhaps it is now overvalued. Perhaps the growth rate is slower after it’s most recent quarterly report. Something has changed. Most of the time you don’t want to sell it all you just want to reduce your stake in the company. There’s one exception.
Most of what I’ve told you to check out about a company is its data. P&L, balance sheet, cash flow report, and statistics derived from what the company has reported. Now if all that data is actually bullshit and the company is being investigated, or some short seller has indicated they believe the company reports are fraudulent, well that’s a big deal. It means the reason you bought the company’s shares and the reason you still have them are based on bad data. Perhaps you wouldn’t have bought the shares if you knew the real numbers. Problem is, you now don’t know the real numbers.
There’s only one thing to do. Sell.
When do you get back in? Never.
You now can’t trust the company to report good numbers. Perhaps that changes in the future sometime. I can’t imagine going into business with somebody whom I can’t trust.
You might think I’m overblowing this a bit. This situation has happened recently to me and I keep seeing the company’s stock go down down down, and I just can’t stomach putting my trust in this company now. Something seriously drastic would have to happen for that to change. Perhaps Warren Buffet takes over the company and promises the company will report good earnings from now on. I just don’t know if even that would do it.
I’ve seen a couple companies or more declare bankruptcies and I’m ok with that as long as they have been reporting valid numbers. Companies come back from bankruptcies. Companies have real problems after frauds happen.
Think about it a bit.